Sonic hedgehog (Shh) signaling is critical for various developmental processes including specification of the midbrain dopamine (mDA) neurons in the ventral mesencephalon (vMes). While the timing of Shh and its response gene Gli1 segregates mDA neurons, their overall lineage contribution to mDA neurons heavily overlaps. Here, we demonstrate that the same set of mDA neuron progenitors sequentially respond to Shh signaling (Gli1 expression), induce Shh expression, and then turn off Shh responsiveness. Thus, at any given developmental stage, cells rarely co-express Shh and Gli1. Using ShhCre:GFP mice to delete the Smoothened receptor in the Shh pathway, we demonstrate that the loss of Shh signaling in Shh expressing cells results in a transient increase in proliferation and subsequent depletion of mDA neuron progenitors in the posterior vMes due to the facilitated cell cycle exit. Moreover, the change in duration of Shh signaling in vMes progenitors altered the timing of the contribution to the ventral tegmental area (VTA) and the substantia nigra pars compacta (SNc) mDA neurons. Taken together, our investigation on the relationship between the Shh-secreting and -responding cells revealed an intricate regulation of induction and cessation of Shh signaling that influences the distribution of mDA neurons in the VTA and SNc. In order to further investigate the significance of Shh signaling downregulation in the ventral floorplate, we generated a novel mouse line that conditionally expresses a constitutively activated form of Gli2 transcriptional activator. The mouse line was successful in inducing Shh target gene expression such as Gli1 in the absence of Shh signaling. This new mouse line will have a great application in studying the role of Shh signaling activation in midbrain as well as various other tissues where Shh signaling is critical during development and in mature system.